Everything An NRI Needs To Know About Property TDS Payment: Sale/Purchase/Rent
Over the past several years there has been a phenomenal growth in the number of property investments by NRIs in India. Read on Checklist for NRIs to invest in Indian Property. However, this has in no way decreased the confusion surrounding the tax implications, especially the TDS deductions for NRIs with respect to property transactions in India. While most NRIs are aware of the fact that they are liable to pay tax on any income earned by them in the country, including the one earned through property transactions. In this context, the government has provided the facility of Tax Deduction at Source or TDS to non-residents, even though this provision is implemented in case of resident Indians only, but has been extended in special cases where the transaction exceeds a basic threshold limit.
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NRI Property Transactions That Are Subject To TDS
All property transactions of NRIs are subject to TDS and include payments received by the NRIs in lieu of rent for their property or the amount they receive on the sale of a property. In addition, transactions amounting even to a few thousand of rupees and purchase of an immovable property, as well as any inheritance rights in such properties, are also subject to TDS. In the case of income earned from multiple properties, the TDS is deducted individually on the total annual payment received by NRIs for each property. Also, when a property is owned only partially by NRIs, their TDS liability is calculated according to their share in the property. The basic details of TDS implications on rental income and sale of property are given below.
TDS on Rental Income
NRIs are liable to pay income tax on the rent received by them under the head of House Property. The rate of taxation and other provisions are the same as those for resident Indians. In this context, the following three pointers need to be considered.
- The taxes are levied on the total rent received by the NRIs and the first tax to be deducted from the same is the municipal tax.
- On the balance amount remaining after reducing municipal taxes, a 30% standard deduction is allowed in addition to the deduction for the interest paid on the home loan.
- In case of NRIs owning multiple properties, some of which have neither been rented out nor are being used for residential purposes, then these properties can be claimed as self-occupied for which notional rent is to be calculated, even though the tax is levied only on remaining properties.
TDS on Sale of Property
An NRI is said to earn capital gains when they receive money after the sale of property either owned or inherited by them. The capital gains can be short term or long term based on the period of holding of the property and its cost is the cost to the previous owner. The two most important points to remember in this context are as follows. Read more on NRI guide to property registration in India
- When the property is sold within 2 years from its date of purchase, it is considered as short term capital gains. In this case, the tax charged is in accordance with the existing income tax slabs applicable to NRIs.
- When the property is sold after the completion of a period of three years from the date when the NRIs come to possess it, it is referred to as long term capital gains. In this case, the NRIs are taxed at 20% plus cess and additional surcharge after indexation.
Other Points To Consider for Property TDS Payment
The TDS in case of both rental income and capital gains is to be paid by the people tenants or the buyers of NRI owned properties. For this, they need to comply with the various procedures established by the IT department for every single transaction. These procedures are listed as follows.
- The tenanats and buyers need to acquire a tax deduction account number or TAN before they can makeany payment to the NRI landlord or seller.
- They will be required to deduct the tax amount either at the time of credit or payment, whichever of the two is earlier.
- The tenants and buyers also have to submit a quarterly return in Form No 27Q along with a copy of the TDS certificate within a specified time period or face stringent penalties.
Being aware of the above-discussed facts can help both NRIs and the people they perform the property transactions with, to complete the whole process in a smooth and hassle-free manner.
